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Introduction
Many
people assume probate is a time-consuming, expensive process. While it
does entail costs and take time, probate may be less cumbersome than
you fear. This brochure presents basic information about what probate
does and how it works – and when it is unnecessary.
What is probate? Probate
is a court-supervised procedure for transferring ownership of someone's
assets after he or she dies. This process validates the person's will
and distributes property as the will directs. If the decedent left no
will or other legal arrangement for transferring assets upon death, the
estate still goes through probate.
The goal of probate is to
protect the rights of heirs or other beneficiaries and others who have
an interest in an estate. Probate determines what the estate owes in
taxes and to creditors. Once probate officially distributes assets to
the beneficiaries, those assets are free from any additional tax
liabilities or creditors' claims, including claims based on medical
assistance recovery laws.
Who oversees the probate process? The
will names a personal representative who is responsible for overseeing
the probate of an estate. A personal representative (called an executor
in many states) may be a family member, friend, business associate,
financial institution, or trust company. If the will designates no
personal representative, the court appoints one.
The personal representative's main duties are to: - Identify and collect the decedent's assets.
- Manage those assets during the probate process.
- Determine the surviving spouse's rights under the state marital property law.
- Pay debts, claims, taxes, and probate administrative expenses.
- Distribute the remaining assets to those named in the will.
What's the difference between formal and informal administration? A
probate judge presides in formal administration, while the county's
register in probate supervises informal administration. Generally, you
must use formal administration if the will has contested issues. Only a
probate judge can rule on such disputes. If contested issues arise
during informal proceedings, the matter would have to be switched to
formal administration.
Informal administration costs less than
formal, and, in many cases, you can handle all or most of the process
through the mail. Milwaukee County, however, does require the personal
representative to appear in person at the initial hearing.
Should I hire an attorney to handle probate? The
personal representative may wish to turn to a lawyer for professional
legal advice related to the probate process. The personal
representative is free to hire any attorney of choice; this need not be
the lawyer who drafted the will.
For formal probate
proceedings, a lawyer must represent the estate's personal
representative. And, though not required, it's advisable for the
attorney to attend informal administration hearings, if there are any.
The register of probate's staff can answer basic questions about
procedures and preparing forms. But, unlike an attorney, they can't
evaluate your case and provide legal advice.
Which assets can bypass probate? Also
exempt from probate is property titled in joint ownership, which
automatically passes to the surviving owner. In addition, life
insurance payments and funds in an IRA, pension, 401(k), or other
retirement plan bypass probate – if the decedent has named
beneficiaries other than the estate. Those beneficiaries would receive
the funds directly. But if the decedent named no beneficiaries, or
named the estate as the beneficiary, these assets would go through
probate.
Other assets may be exempt from probate, as well, if
the decedent has done the necessary estate planning before death. More
on this later.
How much does probate cost? The
major probate expenses include court costs and fees paid to the
personal representative and the attorney. The funds to pay these
expenses come out of the estate.
The value of the estate's
assets will determine the court filing fees. Attorney fees vary
depending on the complexity of the estate. Also, fees vary from one
attorney to another, depending on experience and other factors. Billing
methods also differ. Some lawyers charge by the hour; others charge a
fixed fee. But by law, the attorney cannot base charges for probate
services on a percentage of the estate's value.
Once an
attorney has basic information about the estate, he or she should be
able to give you a rough estimate of total fees. Be sure you understand
the fee arrangement before retaining the attorney.
The personal
representative has a right to reimbursement for expenses incurred in
managing and settling the estate, and for time spent carrying out those
duties. Payment for the latter may equal 2 percent of the inventory
value of the estate assets (less any mortgages or liens). Or it may be
some other amount the decedent specified, or the beneficiaries agreed
upon, or the court approved. If the personal representative is derelict
in carrying out duties, the court may reduce or deny compensation. The
court also must approve expenses and attorney fees in formal probate
proceedings.
What taxes does probate involve? The
estate must pay state and federal income taxes on income the estate
earns from date of death until completion of probate. In addition,
there may be state and federal estate taxes. The value of the estate
assets determines the amount of estate taxes.
No estate taxes
are due on property distributed to a surviving spouse who is a U.S.
citizen. In addition, in 2004 and 2005, the first $1.5 million of
assets are exempt from federal estate tax. This exemption is scheduled
to increase under current law to $2 million for persons dying in
2006-2008 and to $3.5 million for persons dying in 2009. The federal
estate tax is repealed for one year in 2010, but returns in 2011 with a
$1 million exemption. Even if no federal estate tax is due, the estate
may need to pay Wisconsin estate tax if the value of the estate exceeds
$675,000.
How long does probate take? Probate
can take two years, even longer, for a large or contested estate. But
the process may last up to six months even for a small, uncomplicated
estate. Why does it take so long?
One reason is the time
allowed for creditors to file claims against the estate. Usually it
takes a few weeks to notify creditors after death. Once that's
occurred, creditors have three months to file claims against the
estate. Also, the Department of Revenue and Internal Revenue Service
must approve any state and federal estate tax returns, which must be
filed within nine months after the date of death.
Thus, the
time needed for probate depends on such factors as estate size, type of
assets owned, form of ownership, tax issues, complexity of creditors'
claims, marital property issues, and whether a business is involved.
State law requires that an estate be closed within 18 months, unless a
court grants an extension. If the process goes beyond the allowed time,
the court can replace the personal representative or the attorney for
the estate, or both.
Even while the estate is still in probate,
however, beneficiaries may be able to receive part of their
inheritance. Once the creditors' claim period is past, the personal
representative should make sure the estate has enough funds set aside
to cover all expenses and taxes. Then out of remaining funds, the
personal representative could make a partial distribution to
beneficiaries before probate is complete.
Can I avoid probate? As
noted earlier, some estates and types of assets are not subject to
probate. Certain types of estate planning also can make probate
unnecessary. For example, you can put your assets into joint ownership
or into a revocable living trust (see the State Bar of Wisconsin's
pamphlet, "Revocable Living Trusts").
Still, even with this
kind of advance planning, probate may be necessary for some assets.
This could occur, for instance, if an owner overlooked certain assets
when transferring property to a revocable living trust. Or additional
assets, such as a personal injury settlement, could be payable to the
estate after the owner's death and thus not be included in the trust.
And, creating a living trust doesn't eliminate the need to pay taxes.
The trust will owe federal and state income taxes on income the trust
earns, and also federal and state estate taxes if the estate is large
enough.
Is it smart to plan so that your heirs or other
beneficiaries can avoid probate? The answer depends on many factors.
Your attorney can help you sort out your options.
Last updated: July 2004 |
